scariest graph ive ever seen, page-2

From Bloomberg:-

Bankruptcies Rise for Firms `That Should Have Failed'

By Tiffany Kary and Caroline Salas

April 15 (Bloomberg) -- U.S. corporate bankruptcies are accelerating as the economic slowdown compounds the end of easy credit.

The filing by Frontier Airlines Holdings Inc. April 11 followed those of three other airlines and companies in restaurants and retailing this year. Increased levels of distressed corporate debt signal that failures will accelerate, says Lynn LoPucki, a professor at the University of California, Los Angeles law school who studies bankruptcies.

The amount of distressed corporate bonds jumped to $206 billion April 11 from $4.4 billion in March 2007, according to a Merrill Lynch & Co. index of bonds yielding at least 10 percentage points more than Treasuries. The share of leveraged loans considered distressed was 16 percent at the end of March, the highest since 1997, says Standard & Poor's, based on loans trading below 80 percent of their face value....

http://www.bloomberg.com/apps/news?pid=20601014&sid=aaTdhmzxnz1k&refer=funds

There are $US45trillion of credit default swaps out there insuring bonds. That's a multiple higher than the actual bonds on issue. From wikipedia:-

The market for credit derivatives is now so large, in many instances the amount of credit derivatives outstanding for an individual name are vastly greater than the bonds outstanding. For instance, company X may have $1 billion of outstanding debt and $10 billion of CDS contracts outstanding. If such a company were to default, and recovery is 40 cents on the dollar, then the loss to investors holding the bonds would be $600 million. However the loss to credit default swap sellers would be $6 billion. In addition to spreading risk, credit derivatives, in this case, also amplify it considerably.

So far, not many companies have been failing. The non-housing writedowns of assets by the investment banks has just been unrealized losses.

The big threat has always been actual corporate bankruptcies, because that's when the investment banks and hedge funds will be called upon to pay up.

I hear AMP this morning issuing a bullish call on credit markets. Well, they can bet on that, if they like - but not with my money.